What Is Misselling?
Misselling is a sales practice in which a product or service is deliberately misrepresented or a customer is misled about its suitability. Misselling may involve the deliberate omission of key information, the communication of misleading advice, or the sale of an unsuitable product based on the customer's expressed needs and preferences. Misselling is both negligent and unethical and may lead to legal action, fines or professional censure for those who engage in it. It has been defined by the United Kingdom's former Financial Services Authority as "a failure to deliver fair outcomes for consumers."
- Misselling refers to the misrepresentation of a product or service's suitability.
- Misselling can lead to fines and professional censure.
- An example of misselling occurs in life insurance where policies are misrepresented as necessary to protect assets.
Misselling is a significant problem in the financial services industry and financial industry regulators. Brokers, financial advisors, bank representatives or other salespeople of financial products or services who are compensated based on commissions may have significant incentives to sell investments or investment products based on how much they can earn rather than what is suitable or what is needed by a customer. Misselling may occur with insurance products, annuities, investments, mortgages and a variety of other financial products. A financial loss is not necessarily required to meet the definition of misselling; the sale of an unsuitable product is enough.
A common example of misselling can be found in the life insurance industry. Consider an investor who has a large amount of savings and investments but no dependent children and a deceased spouse. This investor would arguably have little need for whole life insurance or an annuity with an expensive survivor benefit and, therefore, an insurance salesperson describing the product as something the investor urgently needed to protect their assets or income stream in the event of death could be considered a case of misselling.
If a financial adviser sold a risky and complex investment to an elderly woman whose risk profile was extremely conservative, they would be guilty of misselling based on suitability. Such an adviser could be held liable, fined, or be subject to an enforcement action from a regulatory body that may include a suspension or loss of license.
Misselling: How to Fight It
Individuals who believe they have become the victim of misselling should quickly gather their supporting information, especially written proof, and make a claim or complaint as soon as possible. Financial services companies will have a formalized internal complaints process, which in most cases should be the first stop. They are required to respond to any inquiry or claim. If their response is unsatisfactory, some industries or jurisdictions may provide for an ombudsman or independent investigator to look into a complaint. There may also exist the option of contacting the relevant authorities or regulators. Claims and compensation may be available even if a company has gone out of business.